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Fighting Green Mercantilism: Ensuring Cross-Pacific Clean Energy Innovation

wind turbine workers in china

Xi Jinping, China’s leader-in-waiting and incumbent vice-president, is being given a grand welcome to the United States this week. The Financial Times notes that “no previous China vice-president has received a 19-gun salute or an Oval Office meeting with the president.” However, while the Obama administration has made a point of confronting Xi on hot-button issues like human rights and North Korea, much more needs to be said on the issue of China’s mercantilist clean energy policies.The fact is that Chinese policies, including dumping solar panels in the market to undercut competitors, domestic-requirement provisions for wind, and a myriad of IP-theft-related issues are not only stifling innovation, but harming nascent U.S. industries. For instance, last October, SolarWorld USA petitioned the Department of Commerce – on behalf of several U.S. solar companies – to determine whether China has been unfairly supporting its solar exporters. The U.S. International Trade Commission (ITC), which the Commerce Department tasked with investigating the complaint, unanimously declared on December 2, 2011 that Chinese solar panel and cell imports are hurting the American solar manufacturing industry and a final decision is still pending on whether punitive tariffs are justified. Furthermore, four domestic wind turbine manufacturers filed a complaint in December 2011 on unfair trade practices by China and Vietnam regarding subsidized wind turbines. And a Chinese wind turbine company is under investigation for potentially bribing an engineer at a U.S. clean technology firm to steal proprietary software that it was, at the time, paying to use in its products.

It’s clear that Chinese mercantilism is no theory and is a very real problem for the global clean economy. As ITIF President Rob Atkinson has said, “There’s been a significant shift in top-level Chinese economic strategy away from attracting multinational foreign direct investment to unfairly supporting Chinese-owned companies.” The New York Times, for example, reported late last year that China gave “subsidy grants of $6.7 million and $22.5 million to Chinese wind turbine manufacturers that agreed not to buy imported components,” a practice which the Chinese government readily acknowledged and promised to discontinue. While export subsidies and similar policies can help make the Chinese clean energy industry more competitive in the short-run by artificially lowering prices, they could potentially backfire by locking in existing, inferior technologies or diverting global investments away from truly innovative technologies. Furthermore, maintaining such policies constitute a continuous drain on precious economic resources that would be much better served if invested towards the research and development of newer, more innovative technologies. Simply put, all countries can play a positive role in the global innovation ecosystem by targeting key innovation stages to support.  Export-driven, mercantilist policies do no such thing.

At the same time, the unfortunate protectionist back-and-forth that seems to characterize the contemporary U.S.-China trade relationship can be avoided. For example, China’s ability to rapidly demonstrate new technologies, such as large-scale carbon capture and sequestration plants (CCS), allows companies – both in the U.S. and abroad – to accelerate the development of new ideas to market.  Positive partnership, such as those for CCS, focused on producing more innovation is a model moving forward. Ultimately, shifting to a more innovative Chinese clean energy policy could prove to be a truly auspicious start for a Xi-led China.

ITIF will be releasing a comprehensive report on Chinese mercantilist practices across multiple sectors, not just the clean energy industry, on February 28, 2012. For more information on the report unveiling, click here.

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